U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23892 / August 1, 2017
Securities and Exchange Commission v. Jeffrey D. Martin, et al., No. 17-cv-01385 (M.D. Fla., filed July 27, 2017); Securities and Exchange Commission v. Harold J. Swart, Jr., et al., No. 17-cv-01386 (M.D. Fla., filed July 27, 2017)
SEC Charges Eight People with Fraud in Solar Energy Pump-and-Dump
The Securities and Exchange Commission announced fraud charges in a $2 million pump-and-dump scheme involving a shell company.
The SEC's complaints, filed in federal court in Orlando, Florida on July 27, 2017, allege that, between January 2009 and March 2013, Jeffrey D. Martin of Orlando, Florida and Thomas L. Tedrow of Winter Park, Florida orchestrated a scheme to conceal Mainstream Entertainment, Inc.'s status as a shell company, merge Mainstream with a purported solar energy company and sell millions of purportedly unrestricted shares in the open market, all while flooding the market with false positive information about Mainstream. According to the SEC, Martin and Thomas Tedrow allegedly artificially inflated the price of Mainstream stock through false filings with the SEC, press releases, statements to broker-dealers and transfer agents, and by hiring a stock promoter to cold-call investors using false materials provided by Thomas Tedrow. Martin and Thomas Tedrow also allegedly engaged in matched trading designed to emulate legitimate investor interest in Mainstream while selling millions of shares into the manipulated market. The SEC's complaint also alleges that Tedrow's two sons, Christian T. Tedrow and Tyler T. Tedrow, both of Winter Park, Florida, drafted some of the false documents concerning Mainstream and received millions of purportedly unrestricted Mainstream shares that they sold in the open market without registering the shares or having a valid exemption from registration.
The SEC also alleges that Beaufort Capital Partners, LLC and its principal, Robert P. Marino, of Harrison, New York, unlawfully publicly sold Mainstream shares acquired from Martin in unregistered transactions. And, the SEC alleges that Harold J. Swart, Jr., of Kissimmee, Florida, unlawfully publicly sold Mainstream shares based on false statements to his broker-dealer. Finally, the SEC alleges that both Swart and Swart Baumruk & Co. LLP violated an order suspending them from appearing or practicing before the SEC as accountants based on review and other accounting work they performed for Mainsteam.
The complaints also charge six entities as relief defendants for the purpose of recovering illegal proceeds.
The SEC's complaints charge Martin, the Tedrows, Marino, Beaufort Capital and Swart with violating Sections 5(a) and (c) of the Securities Act of 1933, Martin, the Tedrows and Swart with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Martin and the Tedrows with violating Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1 and 16a-3 thereunder and aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, Martin and Thomas Tedrow with violating Section 9(a)(1) of the Exchange Act and aiding and abetting violations of Rule 13a-13 thereunder, Martin with violating Sections 13(b)(5), 20(a) and 20(b) of the Exchange Act and Rules 13b2-1 and 13d-2(a) thereunder, and aiding and abetting violations of Sections 13(b)(2)(A) and 15(d) of the Exchange Act and Rules 12b-11, 13a-1, 13a-14, 13b2-1, 13b2-2, 15d-1, 15d-13 and 15d-14 thereunder and Rule 302 of Regulation S-T, Christian and Tyler Tedrow with aiding and abetting violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Swart and Swart Baumruk with violating a prior SEC order. The SEC seeks permanent injunctions, disgorgement with prejudgment interest against all defendants, civil penalties and penny stock bars against all defendants except Swart Baumruk, an order directing Swart and Swart Baumruk to comply with the SEC order, and an officer-and-director bar against Martin.
To settle the charges, Swart and Swart Baumruk consented, without admitting or denying the allegations in the SEC's complaint to the entry of a final judgment ordering compliance with the prior SEC order and payment of $47,436.63 and $21,622.61, respectively, in disgorgement and prejudgment interest. Swart agreed to be permanently enjoined from violating the charged provisions of the federal securities laws, a penny stock bar, and to pay a civil penalty of $41,945.56.
In separate orders instituting administrative and cease-and-desist proceedings, the SEC charged Karen F. Aalders of Orlando, Florida and Sterling Craig Barton of Pearland, Texas, with violations arising from their respective roles in the scheme. According to the SEC's orders, Barton, who had substantial experience in change-of-control transactions involving public vehicles such as Mainstream, assisted the scheme by devising a sham contract to give Mainstream the appearance of having revenues and operations and advising on the content of Mainstream's filings with the SEC. The SEC's orders state that Barton unlawfully publicly sold Mainstream shares based on false statements to his broker-dealer and Aalders acted as a nominee officer and director of Mainstream and forged a series of corporate documents and made false statements to accountants, a transfer agent, and the SEC.
The SEC's orders found that Aalders and Barton willfully violated Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and willfully aided and abetted and caused violations of Sections 13(a), 13(b)(2)(A), and 15(d) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13b2-1, 15d-1 and 15d-13 thereunder, and that Aalders willfully violated Section 16(a) of the Exchange Act and Rules 13a-14, 13b2-2, 15d-14 and 16a-3 thereunder and willfully aided and abetted and caused violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5, 12b-11, 13a-14 and 15d-14 thereunder, and Rule 302 of Regulation S-T.
Without admitting or denying the SEC's findings, Aalders and Barton each agreed to the entry of cease-and-desist orders and penny stock bars, and to pay disgorgement of $46,500.00 and $16,014.23, respectively. The SEC's orders also bar Aalders from serving as an officer or director of a public company and order Barton to pay $100,000.00 in civil penalties.
The SEC's investigation, which is continuing, has been conducted by Jeffrey T. Cook and supervised by Eric R. Busto in the Miami Regional Office. The SEC's litigation will be led by Alejandro Soto.
Mainstream Entertainment, Inc. is now known as Volt Solar Systems, Inc. On May 22, 2014, the SEC suspended trading in Volt's securities and, on December 16, 2015, the SEC revoked the registration of Volt's securities.
The SEC and FINRA previously issued a joint Investor Alert warning investors about pump-and-dump schemes involving dormant shell companies. The alert provides tips for avoiding these types of schemes, including how to use information in the SEC's EDGAR database to tell whether a company has been dormant.